It Has Begun: The Big Social Security Meltdown

For years, conservatives have been saying that we need to get a handle on Social Security. Even George Bush, who wasn’t a fiscal conservative, understood the risks and he tried desperately to reform the program — but, not: : to avail.

A report from the Congressional Budget Office shows that for the first time in 25 years, Social Security is taking in less in taxes than it is spending on benefits.

…No one has officially announced that Social Security will be cash-negative this year. But you can figure it out for yourself, as I did, by comparing two numbers in the recent federal budget update that the nonpartisan CBO issued last week.

The first number is $120 billion, the interest that Social Security will earn on its trust fund in fiscal 2010 (see page 74 of the CBO report). The second is $92 billion, the overall Social Security surplus for fiscal 2010 (see page 116).

This means that without the interest income, Social Security will be $28 billion in the hole this fiscal year, which ends Sept. 30.

Why disregard the interest? Because as people like me have said repeatedly over the years, the interest, which consists of Treasury IOUs that the Social Security trust fund gets on its holdings of government securities, doesn’t provide Social Security with any cash that it can use to pay its bills. The interest is merely an accounting entry with no economic significance.

…Even though an economic recovery might produce some small, fleeting cash surpluses, Social Security’s days of being flush are over.

To be sure — three of the most dangerous words in journalism — the current Social Security cash deficits aren’t all that big, given that Social Security is a $700 billion program this year, and that the government expects to borrow about $1.5 trillion in fiscal 2010 to cover its other obligations, about the same as it borrowed in fiscal 2009.

But this year’s Social Security cash shortfall is a watershed event. Until this year, Social Security was a problem for the future. Now it’s a problem for the present.

For a long, long time in this country, we’ve sacrificed the “future” for the “now.” The problem with doing that is that eventually, the future arrives and you have to deal with it. Say hello to the future of Social Security, folks, because it’s here a little early.

Moreover, it won’t be alone for long. Medicare is going to be next and the Obama Administration is spending money at an unsustainable rate and has no plans to stop — and that’s even before they’ve gotten what would undoubtedly turn into a huge, budget busting health care bill through.

Now, I’m sure that plenty of politicians and “experts” will just wave this off. “Oh, it’s a small amount. We can adjust easily. We’ll just raise taxes a bit or borrow a little more money. It’s nothing to worry about.”

Let me tell you what history teaches us, folks. It teaches us that an accumulation of things like this are what wreck great nations because it prevents them from having the financial flexibility they need to deal with the sort of major unexpected setbacks that history throws at them again and again.

Having Social Security go into the red should be a major wake-up call for Americans. We can’t afford to keep spending like this. We can’t afford to keep sacrificing our future for our “now.”